Resolve Your Income and Business Taxes through Bankruptcy While Continuing to Operate Your Business

Do you believe that your small business could survive, and even thrive, if you could just get better payment terms on your overdue taxes?

 

The Near-Universal Debt Challenge

If you are the owner of a struggling business, you likely have income tax problems.

When you are barely scraping by, needing every dollar to pay the absolutely necessary expenses to operate your business, it’s not surprising that there just isn’t enough money to pay the estimated personal income tax payments when they come due every calendar quarter. And so it’s also not surprising if those quarters of unpaid or underpaid taxes start piling up, and before you know it you are behind a year or two or more of income taxes.

The situation can be even worse if you have an employee or two. When you have some absolutely crucial business or personal expense to pay, it’s sometimes just too tempting to use the employee payroll tax withholding money to pay that expense instead of turning the money over to the IRS or the state.

Then your business improves so that you can begin to pay your ongoing estimated and withholding taxes. But you still don’t have the money to simultaneously pay both your current and past tax obligations. Plus penalties and interest keep accruing.

Catching up once you fall behind on your taxes is simply very hard to do when you’re trying to run a business.

The Fear Factor

 You likely already know that the IRS and the state taxing agencies have extraordinary collection powers that they can bring to bear against you, and against your business and personal assets. Besides the usual tools that they can use against individuals, they can do worse to you and your business. They can garnish your receivables—so that your customers find out that you are having serious tax problems. They can levy on—seize—your business equipment and inventory. They can “tap your till”—come onto your premises and seize whatever cash you have on hand.

It’s not that the feds and/or the state will take always such aggressive collection actions against every business or business owner who owes taxes. But they DO tend to be pushier with business-related tax debts, especially if they include tax withholdings.

The larger point is that if you own a business and are behind on taxes, the power of the taxing authorities to cripple your business legitimately makes resolving your back taxes your most urgent problem.

The Chapter 13 Solution

A Chapter 13 “adjustment of debts” helps resolve your tax debts, and so enables your business to survive. It does that by significantly reducing both your business and personal monthly debt obligations, and by sometimes reducing the tax debts themselves and/or giving you much more flexible payment terms.

Specifically as to the past due taxes:

  • some of the taxes and/or penalties may be permanently written off (“discharged”) altogether;
  • payments on the remaining tax debts may be stretched out over a longer period than the taxing authorities would otherwise allow, thereby reducing the amount you would need to pay each month; and
  • ongoing interest and penalties usually stop accruing, so that the payments you make pay the tax debts off more quickly.

Conclusion

Filing a Chapter 13 case almost always gives you immediate month-to-month relief, easing your business and personal cash flow. That’s because the IRS and state are immediately prohibited from collecting against you, including using the strong-arm powers that they have to force payment.

And Chapter 13 gives you long-term relief by almost always reducing the total you have to pay, and giving you time and flexibility in paying it.

So, Chapter 13 is often the best way to get you and your business tax-debt free.

 

Written by

A graduate of Lewis and Clark Law School by way of Kansas State University, David Richardson is a licensed member of the Oregon and Washington Bar Associations, the US District Court for Oregon and Western Washington, and the District of Oregon and Western Washington Bankruptcy Courts.